Several analysts believe the conflict in Ukraine and the economic sanctions against Russia could promote the development of CBDCs. Those centralized digital currencies aim to counteract the dominance of US dollars, emerging as alternatives for cross-border deals.
The whole world repudiated the invasion of Ukraine ordered by Russian President Vladimir Putin. The United States led economic sanctions against the Eurasian country, like cutting off the flow of money kept abroad. Several analysts believe that fever of excitement about developing central bank digital currencies (CBDCs) could start.
Countries could use those government-owned digital currencies to prevent the effects of international sanctions. For example, if the digital ruble had existed, the rest of the powers would not have frozen much of Russian finances. Banking executive Hiromi Yamaoka thinks states will change their views toward that alternative due to the conflict in Ukraine.
Digital Yuan Could Be a Currency with International Weight
Yamaoka was the head of the payments and settlements department of the Bank of Japan. He sees much potential in China to make the digital yuan a currency with international weight. The goal would be to counteract the dominance of the US dollar, the most widely traded currency worldwide.
The executive highlighted that freezing the foreign reserves of Russia was the most effective and powerful weapon.
Much of the funds of Russia were in foreign banks and became frozen due to the sanctions. The people from other countries fear that the armed conflict will continue to grow.
Hiromi Yamaoka, an expert on international sanctions, stated this demonstrated the effect of politics and national security on global finance. The digital yuan could emerge as an alternative currency for daily cross-border deals.
He said that China could create a currency bloc, and defense and national security would become crucial issues when discussing the CBDC.
Yuan Digital Positions Itself above Other CBDCs Worldwide
When creating its digital yuan, China did not hide its intentions to take power from the US dollar. Even though they have not yet fully applied its use, many operations within their territory use the CBDC, not the local fiat currency.
China launched its CBDC during the Beijing 2022 Winter Olympics, and over 260 million people have already used it. That number, which will gradually grow, represents 18% of the population.
The International Monetary Fund (IMF) endorsed the cryptocurrency created by the Xi Jinping government. They alleged that the digital yuan had the potential to facilitate cross-border payments. That would be particularly true if China reached an understanding with foreign jurisdictions.
Russia had already undertaken the creation of its digital ruble, but its development is not as complete as the Chinese CBDC. Something similar has happened in the United States, which entertained the idea, but it has not materialized yet.
Digital money will be the future, but its advantages only encourage producing central bank digital currencies. Unfortunately for Russia, they realized it too late and now suffer the consequences.
Cryptocurrencies have become increasingly relevant in the economy, and many governments are aware of that. However, the creation of CBDCs will not allow citizens to use their money without the control of the state.
By Alexander Salazar
